The 7% Hump

12/16/2013 12:01 am EST


Jim Jubak

Founder and Editor,

Data out of China's still mixed, says MoneyShow's Jim Jubak, who discusses investor concerns about the Chinese economy and the government's policy going forward.

We just can't seem to get over the 7% hump in China; that, basically, what we've had in the first week or so of December is ambiguous data that we got, numbers about exports that were higher than expected, the next day we got numbers showing that retail growth in China was better than expected, but the Chinese industrial production was lower than expected. The thing that all of this data, that doesn't really point to anything in particular, does, every once in a while, is that it reminds people that they're really worried about the government cutting its growth target; that no one at this point is really worried about the Chinese economy by itself slowing to 7% growth.

The projections for the fourth quarter are somewhere around 7.6%. That'd be down from 7.8% growth year over year in the third quarter, and Congress's looking at 7.5%, but this assumes that the Chinese government isn't going to do anything to try to slow growth itself, and what you've got is a lot of signs that the Chinese government resists to rebalancing more than growth. It's interested in the bad loan problem more than growth, so a worry is, not so much that the Chinese economy, by itself, is going to slow, but that the Chinese government is going to actually lower their growth target from 7.5% to 7%. That's the panic that hit the markets on December 11, for example, when China sold down on fears that we're going to see a 7% growth target. I think that that's possible, and one of the reasons, that this is not something that you can probably just dismiss and buy Chinese stocks hand over fist, whenever you get this, is that it is possible the Chinese government will lower the growth target. I think it's unlikely, but certainly still not impossible. What you are seeing here, I think, is that its rebalancing the Chinese economy with a little less emphasis on exports and infrastructure spending, a little more emphasis on trying to increase incomes, trying to change the migrant worker policies so that migrant workers feel more secure and therefore can spend some more.

Those things are happening. It's very hard not to have those kinds of changes slow an economy, but we're still talking about 7%, 7.5% growth, 7.6% growth, so China is not falling off a cliff, but this isn't high enough growth to make commodity prices move up, it's not high enough growth to make the Chinese stock market feel really good, so when you get this, you get these big lumps of worry and that's what we're going to see, I think, until policy becomes clearer out of Beijing.

This is Jim Jubak for the Video Network.